Reporter’s Notebook: Small businesses can unite for association health plans, but challenges remain

Federal rules issued this summer widen an avenue for small businesses to offer employee health benefits by making it easier for them to unite to form an association health plan.

By coming together in an association health plan, similar employers — those in the same trade, industry, or profession, or based in the same metropolitan area — can form a larger risk pool of employees to insure and avoid some of the regulations in the Affordable Care Act for small businesses. They include requirements in the ACA for small employers to offer 10 essential benefits in their health plans.

“If I can join forces with the other employers in the group and become a large employer, I don’t have to comply with those things,” said Mary Bauman, an employee benefits attorney with Miller, Johnson, Snell & Cummisky PLC in Grand Rapids.

Bauman offered her perspective on association health plans during a recent interview with MiBiz.

“The thrust of this is to give small employers more choices regarding how they deliver health coverage to their employees,” Bauman said. “The new regulations basically broaden and expand the rules to make it easier for more association health plans to be created. The benefit of that is that it helps a small employer that otherwise couldn’t join an association health plan to now join one, and by doing so, they can qualify as a large employer because all of the employers in the group are together.”

Association health plans have potential benefits and drawbacks for small employers.

A large pool in an association health plan would get rated based on claims experience, rather than the market in which it is located. That helps if an association consists of employers with younger, healthier workforces.

“If I have a young, healthy population, I might want to be rated based on my own experience, and joining an association health plan may give me the opportunity to do that. So that’s the kind of employer that might be interested in this,” Bauman said. “If I’m a small employer and my employees are all 60 years old, this probably isn’t going to work out great for me.”

Bauman said a couple of groups of employers have reached out to her about association health plans “to talk about it at a high level, but I haven’t had anybody say, ‘Oh, boy: I want to really explore setting this up.’”

The new federal rules broadening eligibility for association health plans took effect on Sept. 1.

Another issue for employers considering an association health plan is that the rules the U.S. Department of Labor issued in June do not supplant or replace what’s known MEWA regulations — short for multiple employer welfare arrangement — that make offering an association health plan on a self-funded basis “extremely difficult, if not impossible,” Bauman said.

That leaves an association health plan to fully-insured coverage, which requires employers to then find an insurance carrier willing to write policies. For their part, insurance carriers seem “a little concerned, a little skeptical because this is a new thing,” Bauman said.

“It’s going to be challenging for them to be comfortable in terms of issuing rates,” she said. “What’s the experience going to be like?”

In recent interviews with Blue Cross Blue Shield of Michigan and Priority Health about small group rates in Michigan, executives from both insurers said they were considering how their companies fit with association health plans. Both health insurance providers may have more to say on the plans in the coming weeks or months.

Another potential risk with association health plans is what happens to the risk pool if one or more employer opts out after a year, or if an employer that has an older or sicker workforce joins the association in a subsequent year. Either scenario can skew the association’s risk pool, driving up rates.

“There are more variables than there would be with a single employer,” Bauman said.

Layered on top of those risks are the costs connected with organizing an association and the ongoing administrative expenses, plus the need to craft governing rules and bylaws and outline the functions of an oversight board.

The Congressional Budget Office estimates that association health plans will enroll 4 million people by 2023.

Whether that estimate comes true depends on employers finding the right partners to form an association plan, and the willingness of insurance carriers to participate and offer coverage, Bauman said.